BMW Profitability Falls on Increased Tech Spending

Bayerische Motoren Werke AG (NASDAQOTH: BAMXF), better known as German luxury-car maker BMW, issued a preliminary report of its full-year 2016 earnings on March 9.

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It was a mixed result. BMW's overall revenue, sales, and net income were all records. But the operating profit margin in its automotive segment, a widely watched indicator, fell from a year ago, and the BMW brand's annual vehicle sales fell behind those of its archrival, Daimler's (NASDAQOTH: DDAIF) Mercedes-Benz Cars unit.

BMW earnings: The raw numbers

Results are shown in millions of euros. As of March 9, 1 euro equaled about $1.06.

For the fourth quarter:

Data source: BMW AG.

For the full year:

Data source: BMW AG.

A note about BMW's preliminary earnings report

As noted above, the report issued by BMW on March 9 is a preliminary report. It's a summary that contains only basic full-year numbers, not the usual amount of detailed financial information. Like many other German companies, BMW releases its full results at its annual meeting of shareholders, scheduled for March 21 this year.

Still, there was enough detail in the March 9 report to get a clear idea of how the year went for BMW.

The revamped MINI Convertible helped drive that brand's sales to a record in 2016. Image source: BMW AG.

That helps to explain BMW's 2016 performance. It didn't have a lot of exciting new models to show, it lost the global luxury sales crown to Mercedes, and its margins were squeezed a bit by increased research and development spending.

Below are some full-year highlights. Note that BMW reports results for three business segments: Automotive, which includes the BMW, Mini, and Rolls-Royce brands; Motorcycles; and Financial Services.

Automotive revenues rose 1% to 86.4 billion euros on strong sales volumes but were hurt a bit by unfavorable exchange-rate shifts. Automotive EBIT of 7.695 billion was down 1.8% from a year ago. BMW's automotive EBIT margin was 8.9%, down from 9.2% in 2015, but still within its long-term target range of 8% to 10%.

Sales of BMW-brand vehicles rose 5.2% to just over 2 million. Much of the growth was attributable to the big 7 Series sedan and the "X models," BMW's line of crossover SUVs.

MINI sales rose 6.4% to just over 360,000, a record, on good results for the Clubman and new Convertible models.

Sales of Rolls-Royce Motor Cars rose 6% to 4,011 vehicles, the second-best result in the brand's history. The new Dawn, a convertible introduced in the third quarter, helped drive a 17.4% fourth-quartersales gain.

What BMW said about its preliminary results

Looking ahead: BMW's 2017 guidance

BMW's preliminary statement didn't include detailed guidance. But Krueger said the company expects vehicle sales to rise "slightly" to a new record in 2017, with the caveat that BMW "expects the global political and economic environment to remain volatile."

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